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Ford Shares Tumble as Fourth Quarter Misses Forecast

Alan R. Mulally, chief executive of Ford, kissed the hood of a Ford Focus at the Consumer Electronics Show in Las Vegas this month.Credit
Julie Jacobson/Associated Press

DETROIT — A successful turnaround without government assistance has lifted the Ford Motor Company’s reputation and raised expectations about the company on Wall Street.

Now Ford, the No. 2 American automaker, is learning that good times can be difficult to manage, too. On Friday, it reported results for 2010, its best year in more than a decade, but investors were disappointed and drove the company’s stock price down 13 percent.

Ford earned $6.6 billion last year, retired more than 40 percent of its debt, and became financially healthy enough to promise $5,000 profit-sharing checks to each of its 40,000 hourly workers in the United States.

But it stumbled in the fourth quarter in Europe and reported relatively flat earnings in North America. Net income in the fourth quarter fell to $190 million, a 79 percent decrease from the same period a year earlier.

The performance showed that no matter how solidly Ford rebuilds its operations and products, it still has weak spots that need improvement.

“We’re eager to put people’s concerns to rest,” said Lewis Booth, Ford’s chief financial officer. “It’s a good opportunity for us to learn from this.”

A big portion of the decrease in net income was attributed to a $1 billion charge for converting some company debt. However, Ford also hit a speed bump in Europe, where it swung from a $253 million profit a year ago to a $51 million loss in the quarter.

Mr. Booth said Ford lost market share in Europe because it had resisted matching competitors with higher incentives on its vehicles. The company also has not introduced as many new products there recently relative to other regions.

The company was also hurt by higher commodity costs in both Europe and North America, and structural costs associated with introducing a raft of new models in the United States.

Analysts expressed concern that Ford’s profit machine had stalled despite continued growth in sales and revenue. “The key issue for investors is whether the drivers of the large cost increases are essentially one-time items,” Brian Johnson of Barclays Capital wrote in a research note.

Ford executives played down the slip in earnings, saying that overall 2010 results exceeded expectations and represented major progress in the company’s transition from a truck-heavy lineup to a more balanced portfolio that now included profitable passenger cars.

“We are investing in an unprecedented amount of products, technology and growth in all regions of the world,” said Alan R. Mulally, Ford’s chief executive.

By revamping its products, Ford has been able to charge more for them. Last year, the average price for a Ford vehicle in the United States grew 4 percent, to $31,000, according to the research Web site Truecar.com.

Ford said it would continue to overhaul its lineup with $5 billion in capital spending this year, compared with $3.9 billion in 2010. The company also is expecting demand in the American market to grow to 13 million vehicles or more this year, compared with the 11.8 million sold in 2010.

Mr. Mulally pledged that Ford’s profit margins would improve in both North America and Europe. The company is also realizing big savings on interest payments from retiring $14.5 billion in debt last year.

He declined to reveal how much further Ford planned to reduce its debt, which stands at $19.1 billion. “We are going to chip away at it over time,” he said. The company is generating positive cash flow every quarter, he said, and its cash reserves now are larger than its total indebtedness.

Ford’s profits in 2010 were its highest in 11 years, and spurred the company to agree to generous profit-sharing checks for its hourly employees represented by the United Automobile Workers union.

The record for profit-sharing at Ford was $8,000 per worker in 2000, when the company had more than 100,000 union employees. But workers received nothing for several years when Ford was losing money, and just $450 checks last year based on its 2009 performance.

Ford and the U.A.W. agreed to change the profit-sharing formula in 2007, when the profits of the Ford Credit finance arm were subtracted from the calculations. That was done to create a level playing field with General Motors, which sold off its captive car-finance company.

Bob King, the president of the U.A.W., said Friday that the new formula would have allowed Ford to pay considerably less to workers this year than the $5,000 it ultimately agreed to. Neither Ford nor the U.A.W. would disclose the how much the company was required to pay under the contract.

In discussions with the union, Mr. King said, the company raised the payments beyond the requirement. “To Ford’s credit, they did much more than what they would have been contractually obligated to,” Mr. King said in an interview.

Chrysler is scheduled to report its final 2010 results on Monday. General Motors has not yet set a date for its year-end results.

Correction: January 28, 2011

An earlier version of this article misstated Ford’s 2010 pretax profit for North America as $5.4 million.

Nick Bunkley contributed reporting from Detroit.

A version of this article appears in print on January 29, 2011, on page B2 of the New York edition with the headline: Posting Results, Ford Falls Short of High Expectations. Order Reprints|Today's Paper|Subscribe